Bridges for Innovation Between Public & Private Sectors: Experiences, Failures &

Potentials

Phil CookeVisiting Prof, Center for Innovation, Bergen

University College, Norway.Presentation to Public Innovation Conference,

Rena, Norway, 26 February, 2015

Structure of PresentationEvolution of Public Innovation• Experience of Public innovation was

once strong. Neo-liberal emphasis on “market” saw it fail

• Yet, due to wars, military innovation & large scale public ownership of production facilities (coal, steel, shipbuilding) and utilities (telecom, energy, water etc.) the “model” retained potential

• Keynesian pact between public innovation (e.g. Donald Davies, NPL, inventor of packet switching [basis of Internet]) and private commercialisation (ARPANET > Google, etc.)

• The newer Israeli “model” widely admired translation of public (often military) R&D for Civilian purposes

Treorci, Rhondda, Wales (2013) Commemoration of D. Davies

Norwegian Model of Public Innovation

• Arose strongly in new Oil & Gas Extraction & Equipment Industry in the 1970s

• Establishment of Statoil & NPD regulatory regime in “Entrepreneurial” phase (after Engen, in Fagerberg et al. 2009)

• Followed by “Early Consolidation” phase “Norwayisation” of engineering supply industry (Kvaerner, Aker > concrete drilling platforms > Condeep “Troll A” – overall - K30-K40 jobs)...........

Norwegian Model (continued)• “Maturation” phase: emergent NIS/RIS exposed to

tough competition but also enhanced “Goodwill Agreements” R&D from NRC in universities (expensive; big tax reliefs – 78%)

• Followed by “Reorganization” phase: decline of infant industry protection & more liberalised/globalised NIS/RIS. Oil price $9 per barrel (!) in 1986.

• NORSOK (1993) consortium to cut NIS/RIS costs by 50%. Oil policy& Regional policy interact. High NRC and private R&D expenses as NIS/RIS liberalises (e.g. RUTH Program – successful > Shell Ullrigg Centre @ Stavanger)

Eclipse of the Norwegian Public Innovation Model in Oil & Gas

• Finally, “Second Consolidation” phase seeks to halve innovation costs again. Simpler, cheaper innovations; job losses; NRC & Private R&D increases for innovations in.........

• Subsea technologies, IT controls & floating rigs; more involvement from SMEs; organisational innovations help cut headcount costs but higher oil price gives some protection.

• Aker-Kvaerner merge & internationalization grows (Azerbaijan, Angola, Nigeria); Statoil & Hydro Gas & Oil merge which completes the ending of Norway’s public innovation regime in oil & gas.

Israeli Model of Public Innovation

• Recognise and recruit talented citizens and in-migrants

• Realise Civilian Innovation Potential from Commercialised Military and Other Public Investments

• Establish (Yozma) venture capital pool• Establish decentralised National Incubator

programme(s)• Aim to commercialise innovative publicly-funded

knowledge as Listed (NASDAQ) start-ups and spin-offs

Benign Variant: Kinrot Ventures & Cleantech Incubator

• Kinrot, is a water technology incubator formed by the Israeli Government’s Technological Incubators Program

• Kinrot has invested in around a dozen cleantech start-ups since its privatisation in 2007

• Incubator includes companies like Aqua Digital, which is developing a remote water metering solution

• 2010 - AquAgro Fund ($110 m.) acquired a stake in Kinrot Technology Ventures from Stern Partners Inc. of Canada

• AquAgro will reportedly be required to inject at least $3 million into Kinrot over the next three years.

Israel’s Public/Private Start-up Evolution• Pythagoras Solar was founded in 2006 by Gonen Fink, previously at Check Point Software,

The company has an R&D centre in Hakfar Hayarok, Israel and a US office in San Mateo, California

• Ben-Gurion University of the Negev, a leader in research and development of technologies in the fields of water, energy and the environment, will invest in Israel Cleantech Ventures, Israel’s first cleantech focused venture capital fund

• Israel Cleantech Ventures was established in 2006 to invest growth capital in Israel's energy, water and environmental leaders. To date, the Fund has invested in 6 companies

• Israel Cleantech Invests in Pythagoras SolarPythagoras is a solar energy company developing innovative photovoltaic technology to revolutionize the cost of solar electricity.

• Israel Cleantech Invests in AqWiseAqWise develops and implements innovative solutions for biological wastewater treatment and rapid filtration using movable plastic biomass carriers

• Israel Cleantech Invests in Emefcy Bioenergy SystemsEmefcy is designing an innovative wastewater treatment system which will harness the energy inherent in organic components in wastewater

• XJet Solar Energy Entrepreneur from Semiconductors

• Orion Solar Energy Entrepreneur from Aerospace

Rotem Industrial Complex & Incubator, Negev

Eilat-Eilot Cleantech Center• The Office of the Chief Scientist

at the Ministry of Industry, Trade and Labor in 2010 chose the Eilat-Eilot group to establish and operate a new renewable energy technology center.

• The Eilat-Eilot consortium includes a range of partners such as Rafael Advanced Defense Systems Ltd., Elbit Systems Ltd. Ormat Industries Ltd. ProSeed Venture Capital Fund, Consensus Business Group (UK), and Ben Gurion University of the Negev.

Modular, Challenge Driven Cleantech Platform

Solar A Solar B

Firm Level Solar C

ClusterLevel

Solar Cluster

ChallengeLevel

ClimateChange

Mitigation

Agro-food & Water Cluster

Water A

Agro-food A

Agro-food B

Water B

Less Benign but Non-Lethal IDF Applications: Unit 8200

• Unit 8200 is IDF’s Surveillance and Big Data Information Gathering Agency (NSA; GCHQ)

• Encourages most talented Info-engineers to become Tech-entrepreneurs

• Past successes: Check Point (world-leading IT Firewalls security firm); Metacafe (world-leading video site); Comverse (“Logger” telecom software, 4,000 employees)

Unit 8200 (continued)

• Other successes: NICE (data security) 3,600 employees); NASDAQ value $5 billion.

• New Dimension Software (enterprise software) – sold (1999) for $675 million to BMC Software (Houston, TX). Reinvestments by Roni Einav in dozens of Israeli tech start-ups.

• Palo Alto Networks (cyber-security) NASDAQ valued at $10bn

• ICQ (instant messaging) sold in 2010 to Digital Sky Technologies (Private Equity: HQ Moscow) for $200 million

Evolution of Unit 8200 Entrepreneurship• Until 2003, Unit 8200 was a secret. Then, it starred in the book Start-

Up Nation: The Story of Israel’s High Tech Miracle (2009) by Dan Senor & Saul Singer (Twelve Publishers, NYC)

• Book showed Israel had more venture capital investment per person than anywhere in the world and the largest number of NASDAQ-listed companies (63) after the US and China.

• So, in 2010, Unit 8200 alumni decided formally to offer their expertise to other young Israeli entrepreneurs.

• The result was the 8200 entrepreneurship and innovation support program (EISP), a five-month high-tech incubator in which Unit 8200 alumni volunteer to mentor early-stage startups.

• Between 2010 and 2013, 22 received funding totalling $21m (£13.5m/135 m NOK) and employ 200 people, joining the 230,000 employees of Israel's 5,000 tech companies that earn $25bn a year – a quarter of Israel's total exports.

Global Venture Capital Series Comparison

$billion 2009 2011 2013

USA 24.5 36.2 33.1

Europe 5.7 7.3 7.4

Israel 0.9 1.9 1.7

Canada 0.5 1.2 1,0

China 2.8 7.3 3.5

India 0.8 1.5 1.8

NORWAY 0.2 0.1 0.4

Historic UK Public Medical Innovation Model: Niche>Regime>Landscape

for Regenerative Joint Therapy (Source: Author; Background after Geels, 2006)

Competing Prosthetics

Dominant Design

TEFLON

POLYETHYLENE

STS 1STS 2

STS 3

1961 Charnley Team @ Manchester (Wrightington Hospital Hip Surgery

Centre) 1975

Charnley Wins Lister Prize for Surgery

Limited Collaboration with Thackray Medical Instruments of Leeds

Potential New UK Public Innovation Model (Source: Oliver Wright, The Independent, 1/1/2014 http://www.independent.co.uk/life-style/gadgets-and-tech/news/gchqs-

spook-first-programme-to-train-britains-most-talented-tech-entrepreneurs-9953516.html

• Influenced by Israeli Unit 8200 Experience• Smart Young GCHQ Spies May Become Entrepreneurs.

Using GCHQ “Big Data” IPRs (e.g. Cyber Security)• Based on UK’s “Teach First” programme success• Bright graduates work in challenging schools for two

years on promise of commercial job if they leave teaching

• To further this, GCHQ set up 11 university cyber-research centres & 2 virtual-research institutes.

• In 2014 its first cryptography app released under National Cyber Security Strategy designed gor firms and public sector to combat cyber attacks (e.g. N. Korea)

How, Practically, to Proceed?

• Social Learning/Entrepreneurial State (Dani Rodrik)• Romantic advocacy of state that “absorbs mistakes

& failures”• Through Feedback (e.g. “whistleblowers”)• Failure “error management”• Learning “piloting & pathfinding”• But it’s nearly as paranoid as Hayekian neo-liberal

“state failure” thinking. • Better is the following practice............

Learning from your industry

• First, showcasing existing innovations from inside or outside the region, including abroad, that may be ‘preadapted’ modules or whole solutions for re-use in a new problem

• Second, showing potential innovations that explore the ‘White Spaces’ that no-one has yet

• RDA must then ‘orchestrate’ contests in which competition for RIS3 innovation subsidies and support occurs.

08/05/13

Strategic Niche Management

• Winners rewarded with projects (substantial private as well as public investment funding). (Key role for Algarve RDA)

• These may be early-stage and exploratory, mid-stage and examinatory, and final-stage and exploitative

• Finally RDA must establish a monitoring, learning and public communication system.

08/05/13

Discussion & Conclusions• Much innovation originates at public initiative (“collective” or “demand-

driven” innovation)• But public sector has traditional conventions and rules against exploiting

taxpayer funds for risk-investments• Where funding is strategic (and enormous) as in defence and healthcare,

this risk-fear is lower• Or strategic (e.g. Energy) where an institutional innovation like a Sovereign

Wealth Fund also has wider commercial innovation support potential• The strongest source for public innovation today is from spying; i.e. Big

Surveillance Data for Cyber Security e.g. Israel, NSA & GCHQ• Others are “Grand Challenges” like Healthcare and Climate Change where

public “demand-driven” innovation is strong and private sector needs some kind of ECT “global controller” where it fails to “self-organise” innovation. RIS as innovation catalyst (e.g. Skåne)

• So, private sector, when controlled, cheapens production innovation and obsolesces public production innovation function (e.g. as in Norway oil & gas case) but policy must persist...............